How Avoid Becoming Biotech Zombie

Business
How to Avoid Becoming
a Biotech Zombie
Part 2
Moving from Principles to Systems
Carmen Medina
Carmen Medina, MPH,was a principal
at Tunnell Consulting
at the time this article was written;
King of Prussia,PA,610.337.0820,
tunnell@tunnellconsulting.com.
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BioPharm International
ars.usda.gov
Putting
business
principles to
work in
biotechs
requires careful
implementation
of nine critical
business
systems.
T
he first article in this threepart series aimed at helping
companies avoid becoming
one of the biotech zombies—
companies that have never turned a
profit or marketed a drug but somehow
managed to survive for decades—presented some general business principles:
• Slow and steady wins the race: pursue
careful, systematic growth.
• Stick to your core capability while
remaining open to its strategic
possibilities.
• Weave together the business plan and
the commercialization process.
• Prepare for the unique stakeholder
pressures at each stage of company
evolution.
• Drive the strategic vision in daily
decision-making.
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February 2008
Putting those principles to work
requires careful installation of some critical business systems. However, in the
biotech industry there is no one-size-fitsall organizational design, as there is in
many other industries. Each biotech,
depending on the relevant science and
the product area—from pure biopharmaceuticals to hybrids, vaccines, technology
platforms, or devices—is unique, requiring business systems designed for its particular purpose. Moreover, because a
biotech company requires an enormous
diversity of skills, extra care must be
taken to integrate all of these systems to
ensure that they work smoothly together.
The issue of vitality evoked by the zombie metaphor is particularly apt in this
case—a biotech is more of an organism
than an organization, more like a living
Business
Business and regulatory intelligence
gathering systems should be integrated
to provide comprehensive scenarios.
thing than like a machine. Although
we speak of systems like marketing
and investor relations, it should be
remembered that despite the familiar terminology, these systems aren’t
like the traditional organizational
superstructure of departments and
functions sitting atop the company’s
core activity. Rather, they must
uniquely meld business and science
as well as work tightly together if the
company is to achieve profitability
and scientific viability required for a
biotech to thrive. Therefore, think
first of what the system must do:
what challenges are peculiar to the
industry, the science, the company it
must address, and then make sure all
of the elements are firmly in place.
ALIGNING THE BUSINESS
MODEL WITH THE SCIENCE:
THE STRATEGY SYSTEM
Many companies fail to align the
business model, including the commercialization plan, with the scientific platform. For example, a
company may have a product that
Quick Recap
• The science should be aligned
with the business model.
• The greatest opportunities for
creating a value-added quality
system lie in non-mandatory
standards and guidelines.
• Crises can be survived if you
have an effective risk
management system.
• Hiring the right people can
mean the difference between a
successful product and a
blockbuster product.
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has potential applications in many
therapeutic areas, but instead of
pursuing the more profitable path
of outlicensing this intellectual
property to companies that can
pursue those applications, the company produces the product itself
for a single, comparatively lowreturn application.
As products move through the
commercialization plan and new
doors open and others close as a
result of the product performance,
the strategy should be subject to
constant review and, when necessary, adjusted through an ongoing
strategy development system.
Strategy review and formulation
should not be relegated to the
annual budget review process, as it is
in more traditional industries, but
should be addressed by the top management team, including the chief
executive officer (CEO), chief financial officer (CFO), chief scientific
officer (CSO), and chief regulatory
affairs officer (CRAO), who regularly
convene explicitly for that purpose.
Keeping the progress of the business plan and the science simultaneously in view, the strategy group
is responsible for short- and longterm objectives, contingency planning, and developing strategic
alternatives. For example, the group
might ensure that clinical trials are
designed to demonstrate product
value in multiple patient subgroups and that protocols examine
and uncover the cost and benefits
of products in populations that represent future target markets.
Above all, the strategy group
should remain flexible enough to
go where the science leads, while
creating business value. This is
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February 2008
sometimes easier said than done.
For example, the scientists and
inventors who establish and lead
some biotechs may believe so fervently in their original vision for
their innovation that they resist
redirecting the company’s efforts
along a path that is much more
likely to pass regulatory muster.
A high-performing strategy system that neither lets the business
ride roughshod over the science
nor makes of the science a disinterested, academic pursuit, can make
all the difference between a scientifically and financially healthy
company and the empty shells that
are the industry’s zombies.
SCANNING THE HORIZON:
THE BUSINESS AND REGULATORY
INTELLIGENCE GATHERING SYSTEM
Business intelligence gathering and
regulatory intelligence gathering
differ sharply, and require distinct
capabilities and skills. Business intelligence focuses on market behavior,
competitor actions, and threats such
as the encroachment of offshore
companies. Its practitioners are typically industry and business generalists. Regulatory intelligence focuses
on the actions and intentions of
regulators, and their likely effects on
the company. Its practitioners are
highly focused specialists, with
extensive experience in the regulatory arena. Despite these differences, however, the two systems
should be integrated to provide
comprehensive, nuanced business,
or regulatory scenarios.
Business intelligence gathering is
relatively well understood and the
skills and processes required to institute it are familiar. This is, however,
not the case for regulatory intelligence gathering. Knowing how to
monitor and analyze US Food and
Drug Administration (FDA),
European Medicines Agency Home
(EMEA), Japanese Ministry of
Health, Labor, and Welfare rulings,
and International Conference on
Business
Harmonisation (ICH) guidelines is a
craft that requires great familiarity
and strong working relationships
with the relevant regulatory bodies.
Companies that lack the subtle ability to correctly interpret communications and guidance from
regulators often fall victim to hearing what they wish a regulatory
agency had said rather than what
the agency really meant. Such wishful thinking and selective hearing has more than once been
responsible for overly optimistic
press releases or investor guidance that was entirely unwarranted and which, in the long
run, created reputation-damaging volatility in a company’s valuation. Just as much as superior
business intelligence, the ability
to read accurately the regulatory
tealeaves confers significant
competitive advantage.
The combined business and
regulatory intelligence system
should include, in addition to
business and industry experts, a
first-rate scientific officer and
seasoned regulatory affairs professionals, who really understand
where the regulatory chips are
likely to fall. The system should
also include feedback mechanisms to alert leadership to competitive, scientific, medical,
operational, or regulatory problems. An integrated business and
regulatory intelligence gathering
system gives the company the
ability to outflank the competition, pre-empt problems, maintain an efficient and realistic
commercialization plan, and
absorb regulatory information—
favorable or unfavorable—and
translate it into opportunities.
STAYING ALIVE:
THE INVESTOR RELATIONS
SYSTEM
In large, publicly traded companies, investor relations means
dealing with analysts, oversee-
ing US Securities and Exchange
Commissions (SEC) filings and
annual reports, and satisfying
shareholders. In start-up and
emerging biotechs, however, it
means far more: securing the significant, regular infusions of funding
that are the lifeblood of the company. Further, the CEO, other top
officers, and sometimes board
members must be actively involved
in interactions with venture capitalists (VCs), potential alliance partners, and other investors. In a
landscape where biotechs are competing for funding with many other
investment opportunities that routinely come the way of VCs, the
failure to maintain a systematic,
intellectually honest, investmentsavvy approach to potential
investors can be disastrous.
Business
Concepts such as PAT,QbD,and design
space encourage greater scientific
understanding of processes and products.
Simply trying to dazzle investors
with science and limitless market
possibilities no longer suffices. The
investor relations system must be
able to provide compelling answers
to the questions that today’s
investor will ask about riskadjusted value, investment horizons, commercialization strategy,
intellectual property, the reimbursement environment, company
culture, business and operating
systems, supply strategy, and more.
Not to mention the science, which
is a potential minefield for
biotechs that assume potential
investors won’t understand the science underlying the opportunity
or be able to analyze it adequately.
Being able to answer all of those
questions requires not simply occasional intensive efforts devoted to
developing investment pitches,
but a dedicated system that keeps
the evolving investment rationale
fresh. There is perhaps no better
way to maintain the marriage of
business and science than to be
able at every stage of the company’s lifecycle to answer this
question in the most detailed way:
“Why should an investor give me
money now?”
ACHIEVING EXCELLENCE AND
COMPLIANCE:THE QUALITY SYSTEM
Some of the components of an
effective quality system should be
designed based on the company’s
business model, others are mandated by law, and still others
should be designed with widely
recognized standards and nonmandatory regulatory guidance in
mind.
For a company whose business
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model is vertical integration—taking a drug from discovery to market—the quality system should be
designed to interface with other
key departments for mutual problem-solving and communication,
in addition to handling field monitoring. By contrast, a company
whose business model depends on
outlicensing must have a quality
system capable of transferring its
innovation to a licensee and then
continuing to monitor the product’s performance in the market to
ensure that the company can
respond appropriately and quickly
to any adverse developments. The
company’s quality system should
also include a mechanism for
retrieving information on performance from licensees and may also
entail having personnel on-site at
the licensees’ facilities. The quality
system for a company that intends
to outlicense but has not yet done
so should be focused on Quality by
Design (QbD) to ensure that they
get it right from the first.
Quality components mandated
by law include compliance, customer service, and product design.
Further, manufacturers of devices
and hybrids are required by law to
establish design controls and meet
quality systems regulations (QSRs)
pertaining to purchasing controls.
They must also meet the requirements for management responsibility, which are laid out in 21 CFR
820. Nonbinding standards and
guidelines that can help shape the
quality system include those promulgated by the International
Standards Organization (ISO), ICH,
FDA, and EMEA.
Because the quality components
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February 2008
necessitated by the business model
and by law are likely to be obvious,
familiar, and inescapable, the greatest opportunities for creating a significantly value-added quality
system lie in non-mandatory standards and guidelines. Achieving
ISO certification for your quality
management system signals your
company’s commitment to quality
and international standards and
helps establish valuable credibility
with industry partners, government authorities, and the public.
Further, cconcepts such as process
analytical technology (PAT), QbD,
and design space (DS), which figure
prominently in ICH Q8 and ICH
Q9, encourage greater scientific
understanding of processes and
products and hold out the promise
of a lighter regulatory burden for
companies that adopt them. But
because the regulatory agencies
don’t spell out precisely how to go
about it, some companies fail to
take advantage of the opportunities
those principles offer for reducing
compliance risk, establishing more
robust processes, continuously
improving and creating more regulatory room in which to operate.
Companies that take advantage of
these opportunities will not only
establish greater trust with regulators but also gain additional advantage over competitors whose
quality systems lack such capabilities and therefore slow their
progress to market, enmesh them
in compliance issues, and bog
them down in costly rework.
ADDRESSING EXPOSURE:
THE RISK MANAGEMENT SYSTEM
Regulator y hurdles, complex
uncertainties, and the difficulty of
doing something that’s never been
done before make each biotech a
uniquely risky business both scientifically and financially. A comprehensive risk management system
should be designed to perform four
critical tasks: identify risks, calcu-
Business
late their impact, mitigate their
potential effects, and recover from
crisis.
The system should be able to
identify internal and external risks,
including gaps in core competencies, management bandwidth,
product development risks, times
to various gates in development,
regulatory hurdles, competitive
risks, and many other factors. It
must also quantitatively calculate
the likely risks and their effect on
cash flow.
The system should also be able to
determine which risks are critical—
the “killer concerns” that could
seriously derail the company—and
develop plans to mitigate those
potentially disastrous occurrences.
For example, if you’re in a race with
a competitor to get to market first,
anything that slows down commercialization could severely diminish
the lifecycle sales of the product. To
minimize the risk of being second,
you might decide to go after only
one indication for therapeutic treatment. You could then pursue only a
narrow segment in Phase 3 clinical
trials, requiring only about one year
plus the six months required for an
expedited review. But if you chose
to pursue three indications instead
of one, you might be tied up in
clinical trials for as long as four
years or more.
When it comes to crisis recovery,
the challenges for life sciences
companies are extraordinarily
acute because the lives of patients
are often at stake. The risk management system should therefore
include a fully agreed on action
plan that can be rapidly and comprehensively implemented in the
event of a major crisis. It should be
designed to address the crisis
immediately and in full, with the
ultimate goal of re-establishing
genuine trust with the public and
regulators. Moreover, it should be
designed with the underlying science of the product in mind,
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which allows you to project worstcase scenarios and plan your
responses to them.
MAKING THE MOST OF
INTELLECTUAL CAPITAL:THE
KNOWLEDGE MANAGEMENT
SYSTEM
Many companies lack first-rate
problem-solving and decision-making capabilities because of deficiencies in the way knowledge is
managed, circulated, and executed
throughout the company, not
because of deficiencies in their personnel. The solution lies in a crossfunctional knowledge management
system that delivers critical business, scientific, and operations
intelligence when and where it’s
needed. Such intelligence should
include metrics for quality, risk,
manufacturing failures, compliance, and all of the other key
parameters of the operation. An
enterprise resource planning (ERP)
system should be implemented to
provide instant answers to basic
business questions. Superior knowledge management helps integrate
functions, facilitates faster and better decisions, and produces greater
return on intellectual capital.
GETTING THE WORD OUT:
THE MARKETING SYSTEM
The overwhelming importance of
marketing in the life sciences has
been generally recognized, but in
biotech, the focus should be
widened to include, not only the
competitive landscape, but also the
reimbursement
environment.
Reimbursement, of course, can’t
begin until product approval, but
you shouldn’t wait until then to
address the issue. As early as Phase 2
of drug development, the marketing
system should be geared up to
undertake the advocacy of the innovation across government and private payers who want to understand
the likely business implications, as
well as healthcare providers who
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February 2008
want to understand the science.
Unfortunately, this early alignment of marketing with securing
reimbursement rarely happens,
sometimes because the company’s
founding scientist or inventor, with
great faith in the idea, believes that
the rationale for reimbursement will
be perfectly obvious. Companies
that make reimbursement an early
concern of marketing will achieve
product profitability quickly, while
those that don’t may find reimbursement lagging by as much as four
years from the time the product is
approved by the FDA.
GETTING BETTER ALL THE TIME:
THE CONTINUOUS
IMPROVEMENT SYSTEM
Because there are so many competing improvement methodologies—
from Six Sigma to Lean, Baldrige
assessments, ISO 9000, and more—
organizations often get bogged
down in unproductive discussions
about which to use. Experience
shows that the better approach is
to use whichever tool is most
appropriate for the problem at
hand while integrating all of the
tools under the umbrella of a
holistic system for continuous
improvement. Such a system
should work in all types of
processes, functions, businesses,
and cultures. It should provide a
common language, tool set, and
roadmaps for improvement.
Management systems must be in
place to support and guide
improvement. Finally, it must
address the three key aspects of
process management: process
design and redesign, process
improvement, and process control.
COMPETING ON TALENT:
THE HUMAN RESOURCES SYSTEM
As the primary source of value
creation has shifted in most major
industries over the past 20 years
from tangible assets to knowledge
and innovation, companies have
Business
come to recognize that they are
ultimately competing on the basis
of talent. Nowhere is that truer
than in biotech, where people are
critically important because their
unique skills—in manufacturing,
development, scale-up, technology transfer, and regulatory strategy—create much of the value.
For example, not many people
know how to make stem-cell
products or nucleotide-based
products. Biotech requires not
merely workers, but craftspeople
who can make vaccines, combination products, therapeutic proteins, and cell and tissue products.
In fact, having the right people
can make the difference between a
threefold return on investment
and a tenfold return.
The human resources (HR) system therefore stands at the critical
intersection of strategy and execution. The HR function must of
course still fulfill its transactional
functions: payroll, benefits, and the
like. But now more than ever it
must take the lead in developing a
human capital strategy that is tied
to the company’s business model
and the science. That means that
the chief human resources officer
(CHRO)—a new C-level position
rapidly spreading across industries—must be granted a seat at the
top leadership table. It should be
noted, however, that finding strategically minded HR executives with
biotech experience can be difficult,
but it is worth the trouble to ensure
that you have the HR system that
talent-based competition requires
and a leader who is empowered to
make it work.
The systems, from strategy to
human resources, however, are
only part of the story. They are the
structure—the anatomy, so to
speak—of the living company.
Those systems must also be infused
with life through the critical
processes that create a genuinely
vital company. Those life-giving
processes are the functions—the
physiology of the company—that
are the subject of the next article
in this series. ◆
ACKNOWLEDGEMENTS
Tunnell staffers J. Summer Rogers
and Shih Yu Chang contributed to
this article.
REFERENCES
1. Manganelli RL, Medina C. Found in
translation: how to talk to venture
capitalists. BioExec Int. 2007
Feb:18–21.
3. Snee RD. When Worlds collide: Lean
and Six Sigma, Quality Progress.
2005 Sept:63–65.
4. Snee, RD. Methods for business
improvement—a holistic approach. ASQ
Statistics Division Newsletter.
2007(13–2):11–19.
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